Biden Rule: Good-Credit Homeowners Bear Burden Of Risky Loans

As the Biden administration prepares to implement a new rule on mortgage fees, good-credit homebuyers may find themselves shouldering the costs of riskier loans. Starting May 1, the Federal Housing Finance Agency (FHFA) will alter its mortgage fee structure, with those with solid credit scores, such as 680 or higher, facing higher fees. This shift in costs is intended to subsidize loans for borrowers with lower credit ratings.

According to a Washington Times report, homebuyers with good credit can expect to pay around $40 more per month on a $400,000 mortgage. However, industry professionals, such as Ian Wright of Bay Equity Home Loans, have expressed concerns about this new rule, stating that it “penalizes borrowers with larger down payments and credit scores” and only serves to “overcomplicate things for consumers.”

David Stevens, a former commissioner of the Federal Housing Administration (FHA) during the Obama administration, agrees that this move is ill-timed and will only add confusion to an already struggling industry. The real estate market faces challenges due to interest rate increases by the Federal Reserve and a shortage of affordable homes for sale.

However, FHFA Director Sandra Thompson claims the new rules are designed to “increase pricing support for purchase borrowers limited by income or by wealth” with “minimal” fee changes. Although Thompson’s intentions may be to assist low-income and minority borrowers, critics argue that manipulating prices is not the solution.

Mark Tepper, CEO of Strategic Wealth Partners, calls this measure “socialism for homeowners,” arguing that it rewards bad decisions and undermines capitalism’s principles. He adds that this new rule will have consequences and potentially slow down an already stagnant real estate market.

Mitch Roschelle, real estate expert and managing director of Madison Ventures+, describes the new mortgage fee rule as “madness.” He points out that private mortgage insurance (PMI) fees are traditionally designed to level the playing field from a risk perspective, yet the new rule does the opposite. Roschelle further emphasizes that the rule will apply to all borrowers insured by FHA, not just first-time homebuyers.

With the housing market at a standstill and a limited supply of affordable homes, Tepper and Roschelle worry that the Biden administration’s mortgage fee rule will only exacerbate these problems. In addition, Tepper notes that buyers currently lack the purchasing power they once had, and sellers are hesitant to lower their prices, leading to stalled transactions.

Critics argue that this new rule rewards those who have made poor financial decisions and punishes those who have played by the rules, a sentiment echoed by Fox Business Network “Varney & Co.” host Stuart Varney. He claims this is “pure politics” by President Biden, who is attempting to aid disadvantaged communities by putting his “thumb on the scale.”

As the rule is set to take effect soon, it remains to be seen how this controversial policy will impact both the housing market and good-credit homeowners.